May 2012

PA Transfer Tax Exemptions

By Marc Shaw

Pennsylvania Transfer Tax Exemptions

As a PA Title Insurance company we get inquiries all the time regarding the transfers of ownership for PA properties.  Although we only prepare deeds in conjunction with the issuance of PA Title Insurance, we do have attorneys that are happy to accommodate clients and help them with these transfers that are not part of a typical real estate transaction.

So the question of this post is when is PA Transfer Tax exempt.  First a quick refresher, there is a 2% transfer tax on real estate transfers in most municipalities across Pennsylvania, with 1% going to the state and 1% to the local government.  The PA transfer tax rate is higher in a handful of towns such as the City of Philadelphia, where there is a 4% transfer tax.  Pennsylvania Transfer Tax is customarily split evenly between buyer and seller, although this is negotiable and is determined on the agreement of sale.

It is important to note that certain property transfers are exempt from the realty transfer tax, however.  Here is a list of some of the more common exempt transfers:

1- Transfers for no consideration (i.e. by gift) which pass property under a will or by intestate succession

2- Transfer for no consideration to a trustee of an ordinary trust where the transfer would be exempt if it was made directly from the property owner to all of the possible beneficiaries under the trust (such as where all beneficiaries are exempt family members);

3- Transfers for no consideration to a trustee of a living trust from the creator of the living trust;

4- Transfers for no consideration between a principal and an agent or straw party;

5- Transfers made by corporations in connection with a merger or consolidation;

6- Transfers from a corporation to its shareholders of real estate so long as they receive the real estate in the same proportion as their stock ownership and where they have been stockholders for at least 2 years;

7- By far the most common exempt transfer is between family members.  For example, when two individuals get married they often choose to re-title real estate in both names where it was previously owned by only one of them.  This is an exempt transfer.  Parents often transfer real estate to a younger generation in connection with estate planning.  These are also exempt transfers. Transfers between husband and wife, between parent and child or the spouse of such child, between brother and sister or spouse of a brother or sister, and between a grandparent and a grandchild or the spouse of such grandchild.

Important Note:

One of the most common questions we get in conjunction with issuing Pennsylvania Title Insurance is whether a transfer of ownership done at the time of closing is exempt from transfer tax.  If a particular fact pattern does not fit into one of the items above chances are the transfer tax is not exempt.

The one item that is most commonly asked about is a Dollar Deed or No Consideration Deed.  If one party is deeding to another non related party for no consideration there is not necessarily no costs to such a deed transfer.  First of all, there is a recording fee with the County Clerks office.  Secondly there is transfer tax based on the Tax Assessed Value multiplied by the Common Level Ratio then multiplied by the applicable municipality transfer tax amount.    So if a property’s tax assessed value in the City of Philadelphia is $69,000.00 the applicable transfer tax would be as follows:

69,000* 5.53 (the current common level ratio) * .04 (transfer tax in Philadelphia) = $15,262.80.  This serves as a good example of how the applicable transfer tax is computed in a dollar deed situation.

Any questions never hesitate to call our offices!!